Accumulating to choose, but accumulating what? Drift diffusion modelling of economic preference

Lead Research Organisation: University of Warwick
Department Name: Psychology

Abstract

Imagine choosing between an apple and some chocolate. In one instant you will be thinking about the lovely, crunchy apple. The next you are thinking about the smooth, indulgent chocolate. Your attention will dart back and forth between the apple and the chocolate until you make your mind up. This research is about exactly what is happening, at each instant, as you deliberate and choose. We will combine laboratory experiments (detailed in the Case for Support) and translational field experiments with real consumers making real choices (with our industry collaborators, detailed in the Pathways to Impact). Using eye-tracking technology, we will record millisecond-by-millisecond where people are looking as they choose. This will allow us to build an explanation of the link between attention and choice.

Psychology, Neuroscience, and Economics have developed a first-generation model based on some key findings. When someone is choosing they take time to deliberate and shift their attention back and forth repeatedly. We now know that people are likely to look more at the option they ultimately choose and that if we intervene to make people look more at one option they are more likely to choose it. This has led to the development of drift diffusion models. Although complicated, these models instantiate the following idea: While an individual is looking at a specific option, they are biased towards thinking about why they should choose that option. For example, if you are looking at the chocolate, you are more likely to be thinking about the chocolate and are edging towards choosing the chocolate. In the language of the model, we say you are drifting towards choosing the chocolate while attending to the chocolate. If the chocolate is really much nicer than the apple, you will chose it quickly. In the language of the model, you have a high drift rate. If the chocolate and the apple are pretty evenly matched, you will take ages to decide. In the language of the model, you have a low drift rate.

Now, when you look at the chocolate bar, we can't tell whether you are thinking about the sweetness, the high calories, or the pretty wrapper. So we asked people in our lab to choose between options with spatially separate attributes. For example, we had people choose between lotteries where the cash prize and the chance of winning were written separately, next to one another. We were surprised by the result. We found that looking more at a particular lottery was associated with choosing that lottery-just like with the chocolate. But this result did not hold for the separate attributes. You might expect people who looked more at the high cash prize to be more likely to pick the lottery and people who looked more at the low chance of winning to be less likely to pick the lottery. But, across a whole series of experiments, looking at the bad properties of an alternative was just as strongly associated with choosing that alternative as looking at the good properties.

Our results show that while the link between what you are looking at and what you are thinking about is solid at the level of whole alternatives, it is broken at the level of the composite attributes. We need to rethink the model of how we choose. In the laboratory, we will replicate our findings across a wide number of tasks. We will test the effect of manipulating which attributes people look at. We will test for a feedback loop where looking increases drift rate, which in turn increases looking, and so on. The outcome will be new experimental evidence and new ideas about how we build up evidence over time to choose.

We will translate this laboratory research into the everyday, with real consumers choosing for real. By working with the Financial Conduct Authority, the regulator for consumer financial products, the UK credit card industry, and the Which? consumer group, we will implement field trials, demonstrating these effects in real choices and measuring their impact.

Planned Impact

All financially active adults in the UK will benefit from regulation informed by the understanding of how people choose. The laboratory experiments detailed in the Case for Support include classic economic choices between risky lotteries, and the translational field experiments detailed in Pathways for Impact will involve real choices between financial products such as credit cards, bank accounts, mortgages, payday loans, and structured deposits. We will work with the Financial Conduct Authority to understand how presentation and marketing of financial products should be regulated to help consumers make fair and informed choices. The goal is to present complicated financial information in a format that can directly and most readily be incorporated by the natural evidence accumulation process. We will coauthor a paper in their Occasional Series (see Hunt, Stewart, & Zaliauskas, 2015, for example track record) to disseminate best practice to the consumer finance industry.

All those who shop for consumer goods, groceries, and services also stand to benefit from the research. With the consumer group Which? we will work to translate our laboratory findings on how people integrate information across the attributes of more complex choice objects into field trials testing different ways of presenting multi-attribute products to consumers (e.g., broadband providers with services differing in speed, caps, and cost). This would directly affect Which? subscribers. But beyond the subscription base, Which? offers a number of open services. For example, their birth choice website is visited by about half of all expectant mothers. Birth choice options include location (home, birth centre, labour ward), pain relief (none, gas and air, epidural), and method (natural birth, caesarean). Field trials on information presentation, linked with actual birth choices months later, will help validate the long-term effects of decisions made and revisited for perhaps only tens of minutes.

We will also focus on credit card users, exploiting our strong links with the UK credit card industry (e.g., Navarro-Martinez et al., 2011). Cardholders must decide the amount of money to repay each month. Sometimes this is a one-off decision taken when a direct debit is set up. Understanding how evidence is accumulated for different options offered in the card activation telephone call can help us shape the timing and delivery of information. Evidence suggests that most cardholders would benefit from setting up a direct debit for more than the minimum payment, but many set up minimum payment only direct debits. Other cardholders choose monthly how much they repay. The design and presentation of bills and web pages will be informed by the laboratory studies and tested in further randomised control field trials. We will also have a particular focus upon those in difficulty, conducting translational field studies on their debt repayment options.

Letters of support are included from the Financial Conduct Authority (the UK financial regulator), Which? (consumer champion and campaign group), the UK Cards Association (the trade body for the UK payments industry), and the Economic and Social Research Institute.

Publications

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Antoniou C (2021) Behaviour and biases of retail investors: Task or trait? in SSRN Electronic Journal

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Bhatia S (2018) Naturalistic multiattribute choice. in Cognition

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Bhatia S (2018) Similarity and decision time in preferential choice. in Quarterly journal of experimental psychology (2006)

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Gathergood J (2017) Naave Diversification and Narrow Framing Among Individual Investors in SSRN Electronic Journal

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Gathergood J (2019) How Do Individuals Repay Their Debt? The Balance-Matching Heuristic in American Economic Review

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Gathergood J (2019) Investor Attention, Reference Points and the Disposition Effect in SSRN Electronic Journal

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Gathergood J (2021) How Do Consumers Avoid Penalty Fees? Evidence from Credit Cards in Management Science

 
Description Discoveries are in two areas. The first is in understanding what happens in the brain when people are choosing. This process is often modelled as one of evidence accumulation, where evidence builds over time for the options under consideration until the evidence for one crosses a threshold level for choice. We have shown how measurement of people's attention during choice contributes: Previously it was thought that attention modulated the accumulation of value. We have shown that attention does not modulate accumulation of value, but instead has its own independent effect. The second discovery concerns how attention interacts with warning messages included with retail financial products, as mandated by the Financial Conduct Authority. Our experimental work shows that warning messages can reduce exploration of financial products, and leads to consumers choosing less suitable financial products. These experiments are currently informing the way the FCA regulates the marketing of retail financial products.
Exploitation Route The research outcomes will be used by other academics working in the preferential choice literature to develop new models of choice. The outcomes can also be used in applications of preferential choice in the real world, including the regulation of financial products.
Sectors Financial Services, and Management Consultancy

 
Description The findings are being used by the Financial Conduct Authority to inform changes to the regulation of the marketing of retail financial products. An NDA in place until January 2022 prevents us describing the use in more detail.
Sector Financial Services, and Management Consultancy
Impact Types Economic,Policy & public services